President Donald Trump's military actions in Iran are effectively functioning as a hidden tax on American households, economists warn, as soaring energy costs threaten to erase anticipated benefits from larger tax refunds this filing season.
Americans are poised to receive bigger refunds than last year, with the average federal tax refund reaching $3,742 as of late February—about 10.6% higher than 2025. However, the economic fallout from the Iran conflict is rapidly negating that windfall, according to a new report.
Since the U.S. military actions in Iran began, oil prices have skyrocketed, sending gas and diesel costs surging. The average price of unleaded gasoline jumped to $3.64 per gallon on Friday, roughly $0.72 higher than the previous month's average. Mortgage rates have also climbed sharply to 6.41% for a 30-year fixed-rate loan, up from 5.9% before the conflict.
"The Iran war acts like a tax increase on the consumer, except nobody voted for it," said Paul Dietrich, chief investment strategist at Wedbush Securities.
The burden falls disproportionately on lower-income Americans, who spend a larger percentage of their budgets on fuel and energy. As households redirect refund money toward gas and groceries rather than discretionary spending, the broader economy loses the boost that tax refunds typically provide.
Experts caution that while tax refunds could help insulate consumers from immediate shocks, the economic damage from elevated energy costs and inflation pressures will likely persist throughout 2026, undermining household purchasing power across income levels.
